Trade War Set to Help Gym Equipment Maker’s Quest for World Dominance
Taiwan Gym Giant Sees Tariffs as Help for World Dominance Plan
(Bloomberg) --
Taiwan’s Johnson Health Tech Co. says it’s poised to be a winner from trade tensions.
The world’s third-largest gym equipment maker expects a new factory in Vietnam, which it planned before the ongoing U.S.-China trade war, to allow it to escape tariffs on made-in-China gym equipment sold to American fitness outlets.
“We will have a greater advantage over our Chinese rivals because they will be hurt by the latest tariffs,” CEO Jason Lo said in a recent interview at the company’s headquarters in the central Taiwanese city of Taichung. “We expect to benefit from orders shifting to us from Chinese competitors as they will be forced to raise prices.”
Companies all around the world are having to find ways to adjust to the escalating trade tensions. Many American retailers are shifting their sourcing out of China’s vast manufacturing belt, a process that’s adding millions in costs and leaving China’s factories in a desperate state. Gym equipment was among the $110 billion in Chinese goods that the U.S. hit with tariffs on Sunday.
Johnson, which supplies Planet Fitness Inc. and Marriott International Inc., still plans to manufacture equipment in Chinese factories mostly for export to non-U.S. markets, said Lo.
The company sees 2019 sales growing by at least 11% to $800 million, Lo said. Its goal for the end of 2020 is $1 billion in revenue, which would match last year’s sales of industry leader Life Fitness Inc.
KGI Securities Co. analysts including Jenny Liu wrote in a note Friday that the new plants in Vietnam and Taiwan will help boost Johnson’s cost competitiveness against its American rivals, increasing its market share.
But Johnson may face the risk of rising margin pressure if its clients such as gym operators do not open outlets as quickly as expected, the note said. The Chinese economy is growing at its slowest pace in three decades and the U.S.-China trade war shows few signs of moving towards a resolution.
The stock has surged 171% this year, poised for the best performance since 2005. Johnson fell as much as 2.2% in Tuesday morning trading in Taipei.
Lo said his company started exploring its options in Vietnam nearly a decade ago, and the new $20 million facility is set to open in December. Johnson Health plans to complete at least one acquisition next year, and an automatic warehousing center in Taiwan will launch in the second quarter.
“Manufacturers have to be like nomads, they should be ready to change their production base for a competitive advantage,” he said. “That’s why we were prepared early.”
To contact the reporter on this story: Cindy Wang in Taipei at hwang61@bloomberg.net
To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Philip Glamann
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